Application And Research Of Option Theories In The Generation Investment Decision-making

Electric power is one of the most essential resources in people’s daily life and producing activities. It supports all kinds of producing activities and meanwhile ensures the stability and security of our country by being the fundament resource that concerns national economy and people’s livelihood. In electric power market, power plants are the most important part of electric power system and the economic benefits of the generation side and the corporation environment will have butterfly effect on industrial chain. China’s electric power market is right now in the mode of price‐competition mechanism. The introduction of competitive mechanism of generation side resulted in the fact that the investment of electric power enterprises went into the market-oriented mode. With the development of this mode, electric power investments would not be able to make profit that easily anymore and the decision‐making of the investments is more and more becoming prudent.This thesis focuses on the applicability and feasibility of option theory concerning the electric power investment decision‐making process through the introduction of real option approach as one new investment decision‐making model, and puts forward generation investment option types and its construction, which will be compared with traditional ones in order to come to a conclusion of the advantages and disadvantages of real option models and its feasibility in the decision‐making process. At the end of this thesis, a real case of generation investment will be presented which Black‐Scholes model, binomial model and Monte‐Carlo model so that a applicable and feasible solution can be provided to electric power enterprises to make wise investments.